Applying Risk Appetite and Tolerance in Episodic Risk Assessments
Question
In which of the following risk management capability maturity levels risk appetite and tolerance are applied only during episodic risk assessments?
Answers
Explanations
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A. B. C. D.D.
An enterprise's risk management capability maturity level is 1 when: -> There is an understanding that risk is important and needs to be managed, but it is viewed as a technical issue and the business primarily considers the downside of IT risk.
-> Any risk identification criteria vary widely across the enterprise.
Risk appetite and tolerance are applied only during episodic risk assessments.
-> Enterprise risk policies and standards are incomplete and/or reflect only external requirements and lack defensible rationale and enforcement mechanisms.
-> Risk management skills exist on an ad hoc basis, but are not actively developed.
-> Ad hoc inventories of controls that are unrelated to risk are dispersed across desktop applications.
Incorrect Answers: A: In level 3 of risk management capability maturity model, local tolerances drive the enterprise risk tolerance.
B: In level 2 of risk management capability maturity model, risk tolerance is set locally and may be difficult to aggregate.
C: In level 4 of risk management capability maturity model, business risk tolerance is reflected by enterprise policies and standards reflect.
The risk management capability maturity model provides a framework for assessing an organization's risk management capabilities and maturity. It includes five levels of maturity, each with its own set of characteristics and requirements.
Level 1: Ad hoc At this level, risk management is unstructured, reactive, and ad hoc, with no formalized processes or policies. Risk appetite and tolerance are not defined or applied in any way.
Level 2: Defined At this level, risk management processes and policies are defined and documented, but they may not be consistently applied across the organization. Risk appetite and tolerance may be defined, but they are not consistently applied, and they are not integrated into decision-making processes.
Level 3: Implemented At this level, risk management processes and policies are fully implemented and consistently applied across the organization. Risk appetite and tolerance are defined and integrated into decision-making processes, but they may only be applied during episodic risk assessments.
Level 4: Monitored At this level, risk management processes and policies are continually monitored and refined to ensure effectiveness. Risk appetite and tolerance are defined, integrated into decision-making processes, and consistently applied across the organization.
Level 5: Optimized At this level, risk management processes and policies are optimized to maximize efficiency and effectiveness. Risk appetite and tolerance are fully integrated into decision-making processes and are continually monitored and adjusted as needed.
Therefore, the correct answer to the question is option C: Level 4. At Level 4, risk appetite and tolerance are defined, integrated into decision-making processes, and consistently applied across the organization.
